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Barney Frank: McConnell claims credit for economy

The reason, he bizarrely asserts, is that people knew that the Republicans were going to take power in the November elections and ramped up their buying, selling and manufacturing accordingly, because help was on the way.

There has been a political/economic debate in America about the thesis most closely identified with economist Arthur Laffer. It posits that if the federal government cuts taxes, it will wind up collecting more revenue than before because the stimulating effect of the tax cut on the economy will lead to more taxable activity.

My own view of this was best summed up by a man with whom I am not often in agreement: former Federal Reserve Chairman Alan Greenspan. When asked at a congressional hearing by a Republican if it wasn’t the case that we could reduce the deficit by cutting taxes, Greenspan responded, “That is theoretically possible, congressman, but it hasn’t happened in my lifetime.”

While I haven’t heard him on the subject again, no one has suggested that it has in fact happened since.

But the lack of any empirical support for this argument does not deprive it of all intellectual validity. A cut in taxes will produce some increase in economic activity in almost every circumstance. The key question is whether the increased revenue that comes from that increased activity will outweigh the amount lost by the tax cut, and that is the trick that the tax cutters have never yet pulled off.

George H.W. Bush was one of the first to deride this notion when he ran against Ronald Reagan in the presidential primaries in 1980, famously describing it as “voodoo economics.” Of course, after losing to Reagan in the primaries and accepting the job of vice president, Bush either abandoned this view or convinced himself that a little voodoo never did anybody any harm. But as Bush’s initial reaction and Greenspan’s comment made clear, mainstream conservative Republicans have always been skeptical of the notion that one way to reduce the deficit is by substantially reducing tax rates.

That intelligent skepticism is one of the things that has been abandoned as the Republican Party has moved to a more militantly conservative position. When the Republicans took over in January, they not only replaced a man who had a reputation for nonpartisanship as head of the Congressional Budget Office but also changed the rules for calculating the budgetary impact of public policies by voodooizing it. Specifically, they ruled that going forward, estimates of future government revenue will accept the proposition that tax cutting could mean more government money.

There are two problems with this. First, it is an entirely speculative approach, more subject to ideological bias than most other parts of the budget estimating process. Equally damaging, it is very one-sided. It will be used to say that tax cuts can help reduce the deficit and stimulate the economy but will disregard any similar effects from such things as improving our infrastructure, increasing funding for research or making education more widely available. All of these are very important contributors to future economic activity, but none of them will be so credited by the ideologically controlled budget process.

But even voodoo economics seems plausible compared to the most recent economic analysis put forth by Senate Majority Leader Mitch McConnell. Like other very conservative Republicans, who have been entirely critical of virtually everything President Obama has done, McConnell faces the dilemma of how to explain the fact that the economy in America has performed much better than that of any developed country in the past few years.

Republicans have been critical of the president’s insistence on putting tax rates for people whose incomes are above $400,000 back to where they were before they were reduced earlier this century. They have claimed that the Federal Reserve’s active monetary policy would lead to disaster, first runaway inflation and then a return to recession. They’ve argued that our financial reforms would depress the stock market, as a sign of how much we were damaging the ability of business to carry on their work. And they decried even the limited amount of economic stimulus the president was able to get through Congress in 2009, insisting that it would lead to increased deficits with terrible effects.

They have been wrong on every single one of these arguments. McConnell’s response was a vindication of the old saying that “necessity is the mother of invention.” He dealt with the necessity of explaining away the gross disparity between Republican predictions of the impact of the president’s economic policies and the actual results that they have achieved by inventing a new theory. With voodoo economics clearly insufficient, McConnell has become the progenitor of what can only be described as “doo-doo economics.”

Since it was no longer possible to deny the economic successes America has been experiencing – not as much as we would like, but far better than any comparable economy – McConnell explained it away by taking credit for it. The reason the economy has been performing so well, he bizarrely asserted, is that people knew that the Republicans were going to take power in the November elections and ramped up their buying, selling and manufacturing accordingly, because help was on the way.

Analyzing that silliness can only be analogized to those contests where viewers are asked to document how many errors are present in a given picture. First, there was no sharp uptick in our economic progress as the election approached. Economic growth has been strong all year, beginning in January, long before anybody was sure that there would be a Republican sweep in November. The Federal Reserve’s policies that McConnell and other Republicans have so bitterly opposed have been continuously both successful and free of any of the negative results that the right wing predicted for some years.

Serious people understand that the economic results of any given event always lag the event itself by months, at least. With the exception of some financial speculation about a potential move in interest rates by the Federal Reserve, people do not make actual economic decisions in the real economy based on the prediction of a political event months away.

Voodoo economics is the assertion carried to extremes that cutting government tax rates will almost always produce so large an increase in economic activity that the government will be better off financially. McConnell’s argument is an effort to explain away facts that blatantly contradict almost everything he has said about the economy by making stuff up.

In a column for a newspaper read by people of varying sensibilities, for these purposes, the stuff he is making up is doo-doo.

Barney Frank is a retired congressman and the author of landmark legislation. He divides his time between Maine and Massachusetts.

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